Saturday, April 03, 2010

The Best Place to Find New Oil is Old Oil Fields

Occidental Petroleum has discovered a huge billion-barrel oil field in a part of California that has been sucked dry of oil for many decades. Yet, somehow there was a billion-barrel oil field waiting to be found.

Last year Oxy announced a new find outside Bakersfield, in Kern County, California, which is shaping up to be the biggest onshore oil discovery the U.S. has seen in three decades. It likely holds more than 1 billion barrels of oil (and natural gas equivalents) that will be easy and cheap to extract.

That the gusher is situated in a hydrocarbon basin that has been picked over for 100 years validates the philosophy extolled by Oxy President Steven Chazen and Chief Executive Ray R. Irani: The best place to find new oil is in old oilfields. It also raises the tantalizing prospect of lots more easy oil awaiting discovery in the U.S. That would not only help reduce reliance on foreign oil but also be far cheaper than deepwater oil--it costs roughly $10 per barrel to get oil out of this ground versus $30 (including extraction taxes and royalties) or more for deepwater projects. "It's similar to the economics you have in the Middle East," says Irani.

Within two years the field could be producing 100,000 barrels a day, putting it among the busiest five fields in the U.S. That would be enough to generate net income of $1 billion a year _Forbes

With better technology coming on line for oil discovery and production, expect a lot more big oil discoveries in places that no one expected oil. The Earth is hiding trillions of barrels of sweet crude inside its shell. The discovery tools used by most oil geologists and prospectors are not up to the task of finding most of it -- it is too well hidden, like stealth Easter eggs.

But as long as oil is seen as the "investment of last resort" by big money investors, the smart people will wrack their brains to come up with better tools of discovery and production.

Eventually, the house of cards propping up oil prices will come crashing down. Oil may go somewhat higher before that happens. But when the day comes that oil is no longer overvalued, the smart people will have to go somewhere else.

What would bring that day? Smart nuclear and microbial fuels. Perhaps enhanced geothermal. Even big solar energy will have its place in the dry, arid regions. Wind is too fickle to be trusted, however.